THE OUTL K FOR THE NORTH AMERICAN ECONOMY February 11th, 2020 - - PowerPoint PPT Presentation

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THE OUTL K FOR THE NORTH AMERICAN ECONOMY February 11th, 2020 - - PowerPoint PPT Presentation

Feb 06, 2023 245 likes •669 views

NORTH AMERICAN POWER CREDIT ORGANIZATION, CREDIT CONFERENCE PALM SPRINGS, CA THE OUTL K FOR THE NORTH AMERICAN ECONOMY February 11th, 2020 Dan North Chief Economist, Euler Hermes North America Looking Ahead in 2020 EULER HERMES: GLOBAL

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SLIDE 1

THE OUTL K FOR THE NORTH AMERICAN ECONOMY

February 11th, 2020

Dan North Chief Economist, Euler Hermes North America

NORTH AMERICAN POWER CREDIT ORGANIZATION, CREDIT CONFERENCE PALM SPRINGS, CA

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SLIDE 2

EULER HERMES: GLOBAL LEADER IN TRADE CREDIT INSURANCE

2

Credit Insurance: Protection against bankruptcy and slow payment losses

  • Safer sales growth in the US or overseas
  • Knowledge to better manage risk
  • Improved borrowing options
  • Credit function support
  • Reduce bad debt reserves
  • Get paid for what you sell
  • Founded in 1893
  • AA S&P Rating and A+ AM Best Rating
  • Global leader in credit insurance with 34% market share
  • Offices in 52 countries providing coverage in over 200 foreign markets
  • Backed by blue-chip ownership of the Allianz Group
  • 6,000 employees and 52,000 clients worldwide
  • Insure over $150 Billion in US sales and over $1 Trillion globally.
  • Pay 85,000 claims per year
  • International Risk Database monitors over 85 million companies worldwide

Looking Ahead in 2020

agn

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SLIDE 3

AGENDA

3

Looking Ahead in 2020

01

THE GLOBAL OUTLOOK

02

THE CANADIAN OUTLOOK

03

THE US OUTLOOK

04

TRADE AND TARIFFS

05

CONCLUSIONS

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SLIDE 4

Looking Ahead in 2020

THE GLOBAL OUTLOOK

01

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SLIDE 5

5

World GDP growth 2.7 3.3 3.1 2.5 2.4 United States 1.6 2.4 2.9 2.3 1.6 Latin America

  • 1.1

1.0 1.0 0.0 1.1 Brazil

  • 3.3

1.3 1.3 1.1 2.0 United Kingdom 1.9 1.8 1.4 1.2 1.0 Eurozone members 1.7 2.7 1.9 1.2 1.0 Germany 2.1 2.8 1.5 0.6 0.6 France 1.0 2.4 1.7 1.2 1.2 Italy 1.4 1.8 0.7 0.1 0.4 Spain 3.0 2.9 2.4 2.0 1.6 Russia 0.3 1.6 2.3 1.1 1.3 Turkey 3.2 7.5 2.8 0.1 2.3 Asia 5.0 5.3 4.9 4.4 4.4 China 6.7 6.9 6.6 6.2 5.9 Japan 0.6 1.9 0.8 0.8 0.9 India 8.1 7.1 6.8 5.2 6.0 Middle East 4.9 1.2 1.1 0.5 2.1 Saudi Arabia 1.7

  • 0.7

2.4 0.4 1.2 Africa 1.2 3.2 2.7 1.9 1.8 South Africa 0.6 1.4 0.8 0.3 0.0 2016 2017 2018 2019 2020

Global growth to weaken again during the coming quarters. Some quarters of zero or negative growth possible, in the US, the UK, Japan, South Korea, Russia and Asian export hubs.

Sources: IHS, Euler Hermes, Allianz Research

GDP, Gross Domestic Product is our broadest measure of economic health. It’s a $ value

  • f everything produced by the economy, historically grows ~ 3.3% annually.

Recession (two quarters of contraction) or borderline ones (one quarter of contraction) in France, Italy, Germany, the UK, South Korea, Singapore, Hong Kong, Turkey, Brazil, Mexico, Argentina and South Africa.

Looking Ahead in 2020

GLOBAL GROWTH FORECAST

1.8

can

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SLIDE 6

Looking Ahead in 2020

THE CANADIAN OUTLOOK

02

sum

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SLIDE 7

7

THE CANADA SUMMARY

Looking Ahead in 2020

Sources: IHS, StatCan, Allianz Research

  • Weak consumption
  • Lack of investment
  • Manufacturing contraction
  • BoC too tight, inverted yield curve
  • Slowing US and global economies
  • Rising insolvencies
  • Hot job market
  • Low inflation and interest rates
  • Leading Indicators rebounding
  • BoC on hold
  • Housing stabilized
  • Fiscal stimulus

The Negatives The Positives

  • GDP forecast only 1.7% for both 2019 and 2020.
  • Downside risks, but things can improve.

gdp

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SLIDE 8

8

THE ECONOMY AND CONSUMERS ARE SLOWING

Looking Ahead in 2020

Sources: IHS, StatCan, Allianz Research

  • 1%

0% 1% 2% 3% 4% 5% 2014 2015 2016 2017 2018 2019

GDP and Consumption, y/y

Cons 1.4% GDP 1.7%

lbr

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SLIDE 9

9

LABOR MARKET STRONG, NEAR RECORD LOW UNEMPLOYMENT BUT JOB GAINS SLOWING

Looking Ahead in 2020

Sources: IHS, StatCan, Allianz Research hsn

5% 6% 7% 8% 9%

  • 100
  • 80
  • 60
  • 40
  • 20

20 40 60 80 100 120

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Canadian Labor Market, Jobs Created (000s) and the Unemployment Rate

unemployment rate ( R) near record low 5.4% jobs created (L): H1 247.5k H2 72.8k

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SLIDE 10

10

HOUSING: GOV’T MEASURES (TAXES, MORTGAGE RULES)TO COOL MARKET WORKED, NOW REBOUNDING

Looking Ahead in 2020

Sources: IHS, StatCan, CREA, Allianz Research

Home prices, Y/Y Unit sales, annualized rates, 000’s Housing starts, 3 mo ave, annualized rates, 000’s

mfr

  • 10%

0% 10% 20% 30%

Canada Toronto Vancouver 26%

  • 5%

29% 4% 14% 1% bubbles

400 425 450 475 500 525 550

160 180 200 220 240

problem?

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SLIDE 11

MANUFACTURING IN CONTRACTION

Looking Ahead in 2020

lead Sources: IHS, StatCan, Allianz Research

1.3 1.4 1.5 1.6 2014 2015 2016 2017 2018 2019

Manufacturing Inventory/Sales Ratio highest since the recession

  • 25%
  • 20%
  • 15%
  • 10%
  • 5%

0% 5% 10% 15% 20% 2014 2015 2016 2017 2018 2019

Manufacturing, y/y New orders -1% Sales -0.1%

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SLIDE 12

12

LEADING INDICATORS, BUSINESS CONFIDENCE POSITIVE, SLIDING

Looking Ahead in 2020

Sources: IHS, StatCan, Boc, CFIB, Ivey, Allianz Research

40 45 50 55 60 65 70 75 2011 2013 2015 2017 2019

CFIB >50 stronger in next year PMI >50 expansion

CFIB Business Barometer, and Ivey PMI

  • 8
  • 6
  • 4
  • 2

2 4 6 8

  • 60
  • 40
  • 20

20 40 60 BoC Business Outlook Survey

  • verall (R)

future sales

  • utlook (l)

boc

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SLIDE 13

13

BUT HOW LONG CAN THE BOC HOLD OUT IN A WORLD OF COMPETITIVE EASING?

Looking Ahead in 2020

  • 1%

0% 1% 2% 3%

Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20

US 1.63% Eur -0.5% Jpn -0.1% Aus 0.75% Can 1.75%

Central Bank Rates

(Note: negative rates don't work)

Sources: Central banks, Haver, Allianz Research us

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SLIDE 14

Looking Ahead in 2020

THE U.S. OUTLOOK

03

sum

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SLIDE 15

15 low

US SUMMARY; SOME STRONG INDICATORS NOW, BUT FUTURE WORRIES

Looking Ahead in 2020

The near-term outlook is pretty good...

  • Low interest rates and inflation
  • Small business confidence
  • Services strong
  • Easy financial conditions
  • Housing market recovering
  • Consumer confidence high
  • Income, consumption positive
  • Strong labor market
  • Fed cutting rates
  • GDP forecast positive at 1.6% for 2020
  • Consumer worried about future
  • Income slowing
  • Fiscal and monetary policy
  • Labor market slowing
  • Consumer delinquencies on rise
  • Manufacturing, transportation in contraction
  • Corporate profits weak
  • Several indicators flashing warnings
  • Bankruptcies rising
  • Trade war, divided govt, global weakness
  • GDP forecast only 1.6% for 2020

... but the long-term outlook suggests slowdown

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SLIDE 16

16 nfb

GOOD BUSINESS CONDITIONS WITH LOW INTEREST RATES AND INFLATION

Looking Ahead in 2020

Sources: IHS Global Insight, BLS, Allianz Research

  • 3%

0% 3% 6% 9% 12% 15% 1969 1979 1989 1999 2009 2019

Consumer Price Index CPI core

Inflation

0% 5% 10% 15% 20% 1969 1979 1989 1999 2009 2019

Fed Funds

30 yr mortgage 10-yr

Interest Rates

prime

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SLIDE 17

17 gdp

SMALL BUSINESS STILL OPTIMISTIC

Looking Ahead in 2020

  • 10

10 20 30 40 80 90 100 110

1999 2004 2009 2014 2019

National Federation of Independent Business, Small Business Optimism Survey

  • verall optimism (L)

remains historically high

election

% saying now is a good time to expand (R) historically high

Sources: IHS Global Insight, National Federation of Independent Business, Allianz Research

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SLIDE 18

18

  • 3%
  • 2%
  • 1%

0% 1% 2% 3% 4% 2005 2008 2011 2014 2017 2020

GDP Growth

Looking Ahead in 2020

GDP, LEAD BY SERVICES, HAS BEEN POSITIVE (BUT SLIDING).

fin

2.9% 2.3% 1.6%

45 50 55 60 65 70

2015 2016 2017 2018 2019 2020

ISM Services (85% of the economy) <50 means contraction

new

  • rders

services

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SLIDE 19

19 Sources: IHS Global Insight. FRED, Fed, NBER, Allianz Research

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
  • 80%
  • 60%
  • 40%
  • 20%

0% 20% 40% 60% 80% 100%

1990 1994 1998 2002 2006 2010 2014 2018

Net % of Banks Increasing Spreads

  • n Large C&I Loans

Kansas City Fed Financial Stress Index

  • St. Louis Fed Financial Stress Index

hsn

Looking Ahead in 2020

FINANCIAL CONDITIONS ARE EASY

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SLIDE 20

20 mba Sources: IHS Global Insight. BEA, NAR, NAHB, Allianz Research

40 45 50 55 60 65 70 75 80 85 90 2017 2018 2019 Total Present Sales Expected Sales Traffic National Association of Homebuilders Index

Looking Ahead in 2020

HOUSING MARKET RECOVERING

5,000 5,200 5,400 5,600

550 575 600 625 650 675 700 725 750 2017 2018 2019 New & Existing Home Sales

3mo ave Seasonally Adjusted Annualized Rates

Existing sales (R) 6% y/y New sales (L) 21% y/y

1,100 1,200 1,300 1,400 1,500 2017 2018 2019 Housing Starts and Permits

3mo ave Seasonally Adjusted Annualized Rates

Permits; 11% y/y Starts; 22% yy

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SLIDE 21

21 conf Sources: MBA, Allianz Research

Looking Ahead in 2020

HOUSING MARKET RECOVERING

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SLIDE 22

22 Sources: IHS Global Insight. Conference Board, Allianz Research pce

Looking Ahead in 2020

CONSUMERS 70% OF THE ECONOMY, BUT NERVOUS ABOUT THE FUTURE

20 40 60 80 100 120 140 160 180 2010 2012 2014 2016 2018 2020

Conference Board Consumer Confidence

(down 4/5 months)

present situation future expectations 175 103

132

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
  • 100
  • 75
  • 50
  • 25

25 50 75 100 1970 1980 1990 2000 2010 2020 Consumer Confidence survey: future expectations - present situation

shaded areas are recessions

  • 72
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SLIDE 23

23 Sources: IHS Global Insight. BEA, BLS, Allianz Research grwt

Looking Ahead in 2020

THE TOTAL SPENDING HAS BEEN HELD DOWN BY WEAK INCOME, WAGE GROWTH

1% 2% 3% 4% 5%

2016 2017 2018 2019 Real Personal Consumption Expenditures & Disposable Personal Income, y/y % growth rate long-term ave tax cut (fiscal stimulus) wearing off, slowing after tax income consumption

(this will reverse next mo.)

1.8% 2.4% 3.0% 3.6% 1.2% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4% 2015 2016 2017 2018 2019 2020 Job and Wage Growth, y/y

jobs (L) wages ( R)

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SLIDE 24

24 indcs Sources: IHS Global Insight, BLS, NBER, Allianz Research

Looking Ahead in 2020

AND THAT SLOWING JOB CREATION IS WORRISOME

1.2% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4% 3.5% 4.0% 4.5% 5.0% 2015 2016 2017 2018 2019 2020

Job Openings Rate and Job Growth y/y

job openings rate (L) job growth y/y (R)

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
  • 6%
  • 4%
  • 2%

0% 2% 4% 6% 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Job Growth y/y

latest, 1.4%

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SLIDE 25

25 Sources: IHS Global Insight, BLS, NBER, Bloomberg, SF Fed, Allianz Research dbt

Looking Ahead in 2020

ESPECIALLY SINCE OTHER LABOR MARKET INDICATORS ALSO SUGGEST A SLOWDOWN

0. 02 0. 04 0. 06 0. 08 0. 1 0. 12 0. 14 0. 16 0. 18 0. 2
  • 30%
  • 20%
  • 10%

0% 10% 20% 30%

1990 1992 1994 1996 1999 2001 2003 2005 2008 2010 2012 2014 2017 2019

Temporary Job Growth, y/y

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SLIDE 26

26 Sources: IHS Global Insight, NBER, BEA, Federal Reserve, Allianz Research mfr

Looking Ahead in 2020

CONSUMER ALSO UNDER A DEBT BURDEN, CREDIT CARD RATES AVE. 17%. DELINQUENCIES RISING.

0.0% 0.5% 1.0%

2003 2005 2007 2009 2011 2013 2015 2017 2019

$ Delinquent (>90 days) Debt as a% of Disposable Personal Income (DPI)

STUDENT CARD AUTO

$163b $15b $15b $62b $73b $61b

0 . 0 2 0 . 0 4 0 . 0 6 0 . 0 8 0 . 1 0 . 1 2 0 . 1 4 0 . 1 6 0 . 1 8 0 . 2

1.5% 2.0% 2.5% 3.0% 3.5%

1959 1969 1979 1989 1999 2009 2019

Non-mortgage interest payments / personal outlays

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SLIDE 27

Looking Ahead in 2020

MANUFACTURING IN CONTRACTION, BUT SMALL SIGNS OF REBOUND

Sources: IHS Global Insight. Census, ISM, Allianz Research trns

  • 5%

0% 5% 10% 2014 2015 2016 2017 2018 2019

Real Business Investment

  • 0.1% y/y

down 3 straight quarters

  • 4%
  • 3%
  • 2%
  • 1%

0% 1% 2% 3% 4% 35 40 45 50 55 60 65 2015 2016 2017 2018 2019 2020 Manufacturing Industrial Production (y/y) and ISM Manufacturing Index (<50 is contraction) mfg industrial production (R)

  • 1.3% y/y

ISM (L) <50 5/6 months temp. rebound?

slide-28
SLIDE 28

28 Sources: IHS Global Insight. Cass Systems, Association of American Railroads, city ports, Allianz Research yld

Looking Ahead in 2020

TRANSPORTATION INDICATORS LEAD ECONOMY, TURNING DOWN

  • 25%
  • 20%
  • 15%
  • 10%
  • 5%

0% 5% 10% 15% 20% 25% 2009 2011 2013 2015 2017 2019 Rail Freight Carloads Rail Freight Intermodal Traffic

Railroad Traffic, y/y

  • 20%
  • 15%
  • 10%
  • 5%

0% 5% 10% 15% 20%

  • 15%
  • 10%
  • 5%

0% 5% 10% 15% 2009 2011 2013 2014 2016 2018 2019

Cass Indexes, Trucking Freight

shipments -8% rates (L) -3%

  • 3%
  • 2%
  • 1%

0% 1% 2% 3% 4% 5% 6% 7% 2014 2015 2016 2017 2018 2019

Container Shipments

12 months y/y%, (Long Beach, LA, NY)

slide-29
SLIDE 29

YIELD CURVE, LEADING INDICATOR DRIVEN BY FED POLICY

29 Source: IHS, Federal Reserve, BEA, Euler Hermes dly

Looking Ahead in 2020

  • 300
  • 200
  • 100

100 200 300 400 500

  • 6%
  • 4%
  • 2%

0% 2% 4% 6% 8% 10%

1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Yield spread: 10yr-3 mo Treasuries (bps) Real GDP Growth, Y/Y % Change

The Treasury Yield Curve vs. GDP

average lead about 3-5 qs

slide-30
SLIDE 30

30 source: IHS, Federal Reserve, Euler Hermes, Allianz Research 5/7

Looking Ahead in 2020

CURVE INVERTED, OR WENT NEGATIVE, BUT NOT IN ISOLATION

  • 60
  • 40
  • 20

20 40 60 80 100 120 140

1/18 3/18 5/18 6/18 8/18 10/18 11/18 1/19 2/19 4/19 6/19 7/19 9/19 10/19 12/19 2/20

Treasury Yield Curve, 10 yr - 3mo, bps

September '18: unemployment drops from 3.9% to 3.7%; blistering ISM; hawkishPowell Jan 3rd, 15 bps, then wages steady, ISM drops sharply, Powell softens Fed: done for the year (weak economy) trade talks stop 4 hikes in 2018 to slow hot economy and inflation new tariffs Fed cuts but not enough trade fears ease phase 1 not enough coronavirus

slide-31
SLIDE 31

31 sp Sources: IHS Global Insight., Fed, NBER, Allianz Research

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

  • 100
  • 50

50 100 6/00 8/00 11/00 2/01 2001 recession

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

  • 50
  • 25

25 50 75 100 125 4/89 6/89 9/89 12/89 3/90 6/90 1990 - 1991 recession

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

  • 250
  • 200
  • 150
  • 100
  • 50

50 100 150 10/78 1/79 4/79 7/79 10/79 1/80 1980 recession

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

  • 250
  • 200
  • 150
  • 100
  • 50

50 100 150 3/73 4/73 6/73 7/73 9/73 1973 - 1975 recession

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

  • 100
  • 50

50 100 10/68 2/69 7/69 11/69 1969 - 1970 recession

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

  • 100

100 200 11/05 7/06 4/07 12/07 2007-2009 recession

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

  • 500
  • 400
  • 300
  • 200
  • 100

100 200 8/80 10/80 12/80 3/81 5/81 7/81 1981 - 1982 recession

Looking Ahead in 2020

IN 5 OF PAST 7 RECESSIONS, CURVE WENT POSITIVE BEFORE RECESSION

slide-32
SLIDE 32

32

0 % 2 % 4 % 6 % 8 % 1 0 % 1 2 % 1 4 % 1 6 % 1 8 % 2 0 %

52 54 56 58 60

Apr-59 Jun-59 Aug-59 Oct-59 Dec-59 Feb-60 Apr-60

1960

0 % 2 % 4 % 6 % 8 % 1 0 % 1 2 % 1 4 % 1 6 % 1 8 % 2 0 %

115 120 125 130 135 140

Jul-80 Sep-80 Nov-80 Jan-81 Mar-81 May-81 Jul-81

1981

warning warning warning

0 % 2 % 4 % 6 % 8 % 1 0 % 1 2 % 1 4 % 1 6 % 1 8 % 2 0 %

14 15 16 17

Dec-47 Feb-48 Apr-48 Jun-48 Aug-48 Oct-48

1949

0 % 2 % 4 % 6 % 8 % 1 0 % 1 2 % 1 4 % 1 6 % 1 8 % 2 0 %

23 24 25 26 27

Jul-52 Sep-52 Nov-52 Jan-53 Mar-53 May-53 Jul-53

1953

0 % 2 % 4 % 6 % 8 % 1 0 % 1 2 % 1 4 % 1 6 % 1 8 % 2 0 %

42 44 46 48 50

Aug-56 Oct-56 Dec-56 Feb-57 Apr-57 Jun-57 Aug-57

1957

0 % 2 % 4 % 6 % 8 % 1 0 % 1 2 % 1 4 % 1 6 % 1 8 % 2 0 %

90 95 100 105

Dec-68 Feb-69 Apr-69 Jun-69 Aug-69 Oct-69 Dec-69

1970

0 % 2 % 4 % 6 % 8 % 1 0 % 1 2 % 1 4 % 1 6 % 1 8 % 2 0 %

95 100 105 110 115 120

Nov-72 Jan-73 Mar-73 May-73 Jul-73 Sep-73 Nov-73

1974

0 % 2 % 4 % 6 % 8 % 1 0 % 1 2 % 1 4 % 1 6 % 1 8 % 2 0 %

90 95 100 105 110 115 120

Jan-79 Mar-79 May-79 Jul-79 Sep-79 Nov-79 Jan-80

1980

0 % 2 % 4 % 6 % 8 % 1 0 % 1 2 % 1 4 % 1 6 % 1 8 % 2 0 %

1,100 1,200 1,300 1,400 1,500

Mar-00 May-00 Jul-00 Sep-00 Nov-00 Jan-01 Mar-01

2001

0 % 2 % 4 % 6 % 8 % 1 0 % 1 2 % 1 4 % 1 6 % 1 8 % 2 0 %

325 330 335 340 345 350 355 360 365

Jul-89 Sep-89 Nov-89 Jan-90 Mar-90 May-90 Jul-90

1990

0 % 2 % 4 % 6 % 8 % 1 0 % 1 2 % 1 4 % 1 6 % 1 8 % 2 0 %

1,350 1,400 1,450 1,500 1,550

Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07

2008

earn Sources: IHS Global Insight. BEA, NBER, S&P, Allianz Research

warning warning warning

Looking Ahead in 2020

THE STOCK MARKET ONLY GAVE A WARNING IN 3 OF 11 PAST RECESSIONS

slide-33
SLIDE 33

33

  • 15%
  • 10%
  • 5%

0% 5% 10% 15% 20% 2011 2013 2015 2017 2019

pre-tax after tax Corporate Profits Before and After Taxes, y/y% tax cut, fiscal stimulus, wearing off

2019 stock market returns not from the economy… …it was all PE expansion

lead

Looking Ahead in 2020

EARNINGS, PROFITS WEAK

slide-34
SLIDE 34

34 brpt

Looking Ahead in 2020

MORE EVIDENCE OF A COMING SLOWDOWN

Sources: IHS Global Insight. Conference Board, Allianz Research

  • 4%
  • 3%
  • 2%
  • 1%

0% 1% 2%

  • 20%
  • 15%
  • 10%
  • 5%

0% 5% 10%

2007 2009 2011 2013 2015 2017 2019 m/m (R) down 4 of past 5 months

Index of Leading Economic Indicators

y/y (L) lowest since recession

0. 02 0. 04 0. 06 0. 08 0. 1 0. 12 0. 14 0. 16 0. 18 0. 2

20 40 60 80 100 120 1959 1969 1979 1989 1999 2009 2019

Index of Leading Indicators

slide-35
SLIDE 35

35 trd

Looking Ahead in 2020

Sources: IHS Global Insight, US Courts, Allianz Research

  • 30%
  • 20%
  • 10%

0% 10% 20% 30% 40% 50% 60% 70%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

U.S. Business Bankruptcy Filings, y/y % change

recession ends 9 yrs of falling bruptcies coming to an end recession

BUSINESS BANKRUPTCIES ON THE RISE

slide-36
SLIDE 36

Looking Ahead in 2020

TRADE AND TARIFFS

04

slide-37
SLIDE 37

37

Looking Ahead in 2020

Sources: . Allianz Research phs

  • 20% on Canadian softwood.

Prices soar.

  • 20% on washing machines,

going to 50% after 1.2mil

  • units. Prices rise 15%.
  • 30% on solar panels resulting

in $2.5b cancelled contracts, 10ks job losses.

  • 25% on steel and 10% on
  • aluminium. Steel rose 36%

(now down on weak demand)

  • 10%-25% tariffs on $7.5B of

EU goods

  • 100% on $2.4B French goods

in February.

TARIFFS SUMMARY

Even after phase 1, most tariffs still in place

slide-38
SLIDE 38

38

PHASE 1 TRADE DEAL: IT’S NOT QUITE A “NOTHING-BURGER”

Looking Ahead in 2020

  • China agrees to buy an additional $200bn of imports from the US over 2 years. This could be

unrealistic as it represents about a 50% increase over 2017 and 2018 levels.

  • China pledges to not use coercion, forced technology transfer, or IP theft. But China has said this

before and there have been no changes to Chinese law.

  • China lowers barriers for US companies going into some Chinese markets.
  • US removes 15% tariffs on $160bn of Chinese imports… that were never there in the first place.
  • US reduces tariffs on the last tranche $120bn from 15% to 7.5%.
  • BUT, US keeps in place 25% tariffs on the first $250bn of imports (just under half).
  • AND, China keeps in place its 5%-25% tariffs on $110bn of US goods.
  • So the trade “feud” is not over.
  • Still costing something like 0.3%-0.5% of GDP per year.

cncl

slide-39
SLIDE 39

Looking Ahead in 2020

CONCLUSIONS

05

slide-40
SLIDE 40

40

US SUMMARY; SOME STRONG INDICATORS NOW, BUT FUTURE WORRIES

Looking Ahead in 2020

The near-term outlook is pretty good... ... but the long-term outlook suggests slowdown

  • Low interest rates and inflation
  • Small business confidence
  • Services strong
  • Easy financial conditions
  • Housing market recovering
  • Consumer confidence high
  • Income, consumption positive
  • Strong labor market
  • Fed cutting rates
  • GDP forecast positive at 1.6% for 2020
  • Consumer worried about future
  • Income slowing
  • Fiscal and monetary policy
  • Labor market slowing
  • Consumer delinquencies on rise
  • Manufacturing, transportation in contraction
  • Corporate profits weak
  • Several indicators flashing warnings
  • Bankruptcies rising
  • Trade war, divided govt, global weakness
  • GDP forecast only 1.6% for 2020
slide-41
SLIDE 41

41

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